Switching the routing of services – A change of direction
Ports in the greater Panama Canal region are gearing up for the expansion of the waterway, which will make it capable of catering to larger units. But how will the situation develop in future? According to Drewry the passage is losing ground to the Suez Canal.
The expansion of the Panama Canal in full swing, but lines are increasingly routing services through the Suez Canal, rather than using the Latin American option. Drewry has pointed out that the trend towards more box services making use of this connection is accelerating. 62% of all Asia–US east coast container services (counted in the number of loops) used the Panama Canal route in October, with the remaining 38% sailing between the Red Sea and the Mediterranean. The latter route has thus been able to gain six percentage points in comparison with the like-for-like period last year.
The number of links is one side of the coin. Drewry has also looked into the relative capacity share of the Asia–Panama–US east coast services and Asia–Suez–US east coast connections. This shows a decline in Panama’s share and an improvement for Suez. The latter increased its share of all-water ship capacity from 44 to 52% between October 2013 and October 2014. This illustrates the extent to which shipping lines now use the Panama Canal less frequently than its Afro-Asian opposite number – which is a rather significant development in the light of the fact that there were only three Suez-routed services late in 2009.
It is relatively easy to find the reasons: The Suez route is shorter for firms wanting to serve ports in the Middle East, the Indian Subcontinent and Southeast Asia. Such connections can also be extended to Hong Kong as well as southern China. Now the firms are even going one step further and are encroaching on the Taiwan market with this transport route, as well as on business to and from the regions around Shanghai and Ningbo – despite the fact that the Panama Canal has a distance advantage. The ever-increasing size of ships plays a major role, as does the transfer of some production activities from southern China to countries such as Vietnam and Bangladesh.
These changes raise the question of whether the trend will be reversed once the enlarged Panama Canal locks are completed. Drewry is of the opinion that this will be the case, at least partially, as one of the main reasons why carriers are switching to the Suez route is that they have a surplus of 8,000 teu units available. As is well-known, these units exceed the current restrictions on the Latin American waterway.
As soon as that changes and the enlarged Panama passage is capable of catering to vessels with a capacity to carry 13,000 teu from 2016 onwards, many Asia–US east coast services will probably revert to that route – provided the canal’s new tolls are reasonable. The same cannot be said for services from Southeast Asia, according to Drewry.